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SERVICE TAX REVERSE CHARGE CHART WEF 01.06.2016

Reverse charge mechanism is not a new concept in service tax. Under the reverse charge mechanism, instead of service provider, the service receiver is liable to pay(deposit) service tax. But with effect from 1.7.2012 a new scheme of taxation is being brought into effect whereby the liability of payment of service tax shall be both on the service provider and the service recipient. Usually such liability is affixed either on the service provider or the service recipient, but in specified services and in specified conditions, such liability shall be on both the service provider and the service recipient.

Accordingly service tax payment may be divided in three categories (as per section 68 of Finance Act, 1994 )

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Forward charge/Direct charge

Every person providing taxable service to any person shall pay service tax.

Full Reverse charge

Notwithstanding anything contained in sub-section (1), in respect of such taxable services as may be notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service.

Partial reverse charge/Joint reverse charge

Provided that the CG may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider.

We have prepared a chart with the effective rates of Service tax to be payable by Service Receiver (“SR”) under full Reverse Charge and by Service Provider (“SP”) & SR under the Partial/ Joint Reverse Charge, w.e.f June 1, 2016 after imposition of KKC, for easy digest:

Notes to Service Tax reverse charge chart wef 01.06.2016

1. The term ‘Recovery Agent’ has not been defined in the service tax laws. However, in trade and common parlance,‘recovery’ refers to the action or process of regaining possession or control of something stolen or lost. Accordingly, “recovery agent” shall mean to be a person who has the power to recover bad (or poor) debts.

3. Person Liable: Any person who pays or is liable to pay freight either himself or through his agent if such person is:

a. any factory registered under or governed by the Factories Act, 1948 (63 of 1948); or

b. any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or

c. any co-operative society established by or under any law; or

d. any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made there under; or

e. any body corporate established, by or under any law; or

f. any partnership firm whether registered or not under any law including association of persons.

However, if such person is located in a non-taxable territory, the provider of such service (i.e. GTA) shall be liable to pay service tax.

Abatement : Prior to 31.03.2015, abatement / exemption available on GTA Services was 75%, which has been reduced to 70%w.e.f. 01.04.2015.

Further transport of household goods has been excluded from the reverse charge preview as such services is availed by individuals and create confusion.

4. Services of an arbitral tribunal are exempted if service receiver is:

a. any person other than a business entity; or

b. a business entity with a turnover up to rupees ten lakh in the preceding financial year.

5. Legal services (i.e. services of an advocate or firm of advocates) are exempted if service receiver is:

a. an advocate or partnership firm of advocates providing legal services; or

b. any person other than business entity; or

c. a business entity with a turnover up to rupees ten lakh in the preceding financial year.

Services provided by Sr advocates are now covered under forward charge from 01.04.2016

6. Services of Director of a ‘Body Corporate’ has been included in the purview of Director Services, w.e.f 11.07.2014. Service provided by a director incapacity of an employee of the Company or Body Corporate shall not be chargeable to service tax. Deduction of TDS under salary head can establish the same.

7. Earlier(up to 31.03.2016) RCM is applicable on all “Support Services” provided by Government or Local Authority except the following:

a. Renting of Immovable Property,

b. Services by Department of Post by way of Speed Post, Express Parcel Post, Life Insurance and Agency Services;

c. Services in relation to aircraft or a vessel, inside or outside the precincts of a port or an airport;

8. No reverse charge is applicable, in case of similar line of business.

9. Where any taxable service is provided by a person located in non–taxable territory and as per the Place of Provision Rules 2012; Place of provision of the service is determined to be in the taxable territory, such service will be considered as Import of Service.

10. In relation to service provided or agreed to be provided by a person involving an aggregator in any manner, the person liable to pay tax is the aggregator of the service (or any person representing the aggregator for any purpose or designated if aggregator does not have a physical presence in the taxable territory).

“Aggregator” means a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator.

‘Small Service Provider’ exemption of Rs. 10 lakh is not available to recipient of service.

We are also summarizing herewith the effective rates of Service tax to be payable by Service Receiver (“SR”) under full Reverse Charge and by Service Provider (“SP”) & SR under the Partial/ Joint Reverse Charge, w.e.f June 1, 2016 after imposition of KKC, for easy digest:

Prior to 01.04.2016: Services
provided or agreed to be provided
by individual advocate or a firm of advocates by way of legal services

SP: Nil

SR: 14 (100%)

SP: Nil

SR: 14.5

SP: Nil

SR: 15

Post 01.04.2016: Services provided or agreed to be provided by a
firm of advocates or an individual advocate other than a senior advocate
by way of legal services

SP: Nil

SR: 14 (100%)

SP: Nil

SR: 14.5

SP: Nil

SR: 15

5A

Services provided or agreed to be provided by a director of a
company or a body corporate to the said company or the body corporate

SP: Nil

SR: 14 (100%)

SP: Nil

SR: 14.5

SP: Nil

SR: 15

6

Any Services (w.e.f. 01.04.2016)/ Support
services (till 31.03.2016) provided or agreed to be provided by Government or
local authority excluding,- (1) renting of immovable property, and (2)
services specified in sub-clauses (i), (ii) and (iii) of clause (a) of
Section 66D of the Finance Act

SP: Nil

SR: 14 (100%)

SP: Nil

SR: 14.5

SP: Nil

SR: 15

7

(a) Services provided or agreed to be
provided by way of renting of a motor vehicle designed to carry
passengers on abated value to any person who is not engaged in the
similar line of business

After availment of 60% abatement:

SP: Nil

SR: 14%*40% = 5.6 (100%)

After availment of 60% abatement:

SP: Nil

SR:5.8

(14.5%*40%)

After availment of 60% abatement:

SP: Nil

SR: 6

(15%*40%)

(b) Services provided or agreed to be
provided by way of renting of a motor vehicle designed to carry
passengers on non-abated value to any person who is not engaged in the
similar line of business

Without availment of 60% abatement:

SP: 7

(14%*50%)

SR:7

(14%*50%)

Without availment of 60% abatement:

SP:7.25(14.5%*50%)

SR:7.25(14.5%*50%)

Without availment of 60% abatement:

SP: 7.5(15%*50%)

SR: 7.5(15%*50%)

SP: Any individual, Hindu Undivided Family or partnership firm,
whether registered or not, including association of persons, located in the
taxable territory

SR: Business entity registered as body corporate, located in the
taxable territory

8

Services provided or agreed to be provided by way of
supply of manpower for any purpose or security services

SP: Nil

SR: 14 (100%)

SP: Nil

SR: 14.5

SP: Nil

SR: 15

SP: Any individual, Hindu Undivided Family or partnership firm,
whether registered or not, including association of persons, located in the
taxable territory

SR: Business entity registered as body corporate, located in the
taxable territory

9

Services provided or agreed to be provided in service
portion in execution of works contract:

àIn case of Original work

SP: 2.8 {50% of (14%*40%)}

SR: 2.8 {50% of (14%*40%)}

SP: 2.9 {50% of (14.5%*40%)}

SR: 2.9 {50% of (14.5%*40%)}

SP: 3 {50% of (15%*40%)}

SR: 3 {50% of (15%*40%)}

àIn all other cases

SP: 4.9 {50% of (14%*70%)}

SR: 4.9 {50% of (14%*70%)}

SP: 5.075 {50% of (14.5%*70%)}

SR: 5.075 {50% of (14.5%*70%)}

SP: 5.25 {50% of (15%*70%)}

SR: 5.25 {50% of (15%*70%)}

SP: Any individual, Hindu Undivided Family or partnership firm,
whether registered or not, including association of persons, located in the
taxable territory

SR: Business entity registered as body corporate, located in the
taxable territory

10

Any taxable services provided or agreed to be
provided by any person who is located in a non-taxable territory and
received by any person located in the taxable territory

SP: Nil

SR: 14 (100%)

SP: Nil

SR: 14.5

SP: Nil

SR: 15

11

Any service provided or agreed to be provided by a person
involving an aggregator in any manner

In Paragraph I, in clause (A), sub-clause (ib) is omitted to provide that services provided by mutual fund agents/distributor to a mutual fund or asset management company are being put under forward charge;

In Paragraph I, in clause (A), sub-clause (ic) is substituted by “provided or agreed to be provided by a selling or marketing agent of lottery tickets in relation to a lottery in any manner to a lottery distributor or selling agent of the State Government under the provisions of the Lottery (Regulations) Act,1998 (17 of 1998)”, to bring in line with changes made in section 65B(44) of the Finance Act;

In Paragraph I, in clause (A), sub-clause (iv), item (B) has been substituted to provide that legal services provided by a senior advocate shall be on forward charge.

Under sub clause (iv) in Item C, the term ‘support’ has been omitted for services provided or agreed to be provided by Government or Local authority from a date to be notified by the Central Government.

Corresponding changes have also been made in Table contained under Paragraph II.

S. No. 6 of Table contained under Paragraph II is amended to delete the words “by way of support services”, to provide that the liability to pay Service tax on any service provided by Government or local authorities to business entities shall also be on the service recipient on Reverse Charge Basis.

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

Email: bimaljain@hotmail.com

Web: www.a2ztaxcorp.com

FREQUENTLY ASKED QUESTIONS ABOUT REVERSE CHARGE MECHANISM

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1. Whether benefit of threshold exemption of Rs 10 Lacs is available to services on which tax is to paid
under RCM?

Notification 33/2012-ST dated 20th June, 2012 provides exemption from service tax on the value upto
Rs 10 Lacs to small scale service provider.
It does not accommodate within itself such services and such persons as are dealt with under RCM.
Thus service tax under reverse charge, whether complete reverse charge or partial reverse charge, shall
be paid by service recipient or service provider, as the case may be, irrespective of value of his
turnover.
However where legal services are availed by a business entity having turnover less than Rs 10 Lacs in
preceding financial year, such services are specifically exempt in terms of mega exemption notification
and thus no service tax is payable by service recipient in such case.

2. Whether registration is required to be obtained for payment of service tax under RCM?

Section 68(2) of the said act has made applicable, all the provisions of the chapter, to person liable to
pay tax under RCM. Section 69 read with Rule 4 of Service Tax Rules, 1994 requires every person liable
to pay tax to make an application for registration. Thus all persons liable to pay tax under RCM have to
obtain registration.
Where any service provider already registered becomes liable to pay tax as recipient of services, it is
imperative to seek necessary amendments in service tax registration.

3. What is point of taxation in case of liability under RCM?

Rule 7 of Point of Taxation Rules, 2011 states that point of taxation in respect of persons required to
pay tax as recipient of services shall be date on which payment is made to service provider for said
services.
It is further provided in said rule that where the payment is not made within 3 months of date of
invoice then point of taxation shall be the first day that occurs immediately after a period of three months from the date of invoice(wef 01.10.2014). Thus generally service recipient liable to pay service tax, may pay it as a liability for the month in which payment
for the services is made by him to service provider. However, if payment towards invoice is not made
within 3 months of date of invoice then the point of taxation shall be first day after completion of three months from date of Invoice.Further if there is change in rate of service tax ,in that case point of taxation under reverse charge will be date of invoice ,if service provided and invoice date is before the change in rate and payment is after the change in rate.(read more here)

4. Can CENVAT Credit be utilised for discharging service tax liability under RCM?

In terms of Rule 3 of CENVAT Credit Rules, 2004, CENVAT credit could be availed and utilised by service
provider for payment, inter-alia, of service tax on output services. Thus a person liable to pay tax as
recipient of service, being input services for him, cannot utilise CENVAT credit for discharging said
liability.
Also Explanation to Rule 3(4) of CENVAT Credit Rules, 2004 prohibits utilisation of CENVAT credit for
payment of tax as service recipient.
Service recipient liable to pay service tax needs to discharge such liability by cash only.
However service provider liable to pay service under partial reverse charge can very well utilise CENVAT
credit for discharging said liability, subject to provisions of CENVAT Credit Rules, 2004.

5. Whether CENVAT credit can be availed of service tax paid by service recipient under RCM?

Service tax paid under RCM by service recipient on services, being his input services, can be availed as
CENVAT credit subject to provisions of CENVAT Credit Rules, 2004. Such credit shall be available on the
basis of GAR7 challan evidencing the payment of service tax.

6. Where service tax is charged and collected by service provider in case where the liability was casted
upon service recipient, whether service recipient can avoid payment of tax?

In case of “Navyug Alloys Pvt. Ltd. V/s CCE & C, Vadodara-II” [ 2008 17 STT 362 (Ahd – CESTAT) ], it
was observed that “once tax already paid on the services, it was not open to the Department to confirm
the same against the appellant, in respect of the same services”. Similar view was also held in Invincible
security services V/s CCE., Noida [2009 (13) S.T.R. 185 (Tri. - Del.)].
It has also been observed in case of Umasons Auto Compo Pvt Ltd V/s CCE [2014 (2) 100 – CESTATMumbai] that “once the amount of service tax is accepted by the Revenue from the provider of GTA
service, it cannot be again demanded from the recipient of the GTA service”
However, a view may also be taken that liability of service provider and service recipient is totally
independent and different from each other. It is statutory duty of a person to discharge service tax
liability when same is casted upon him by law.
Thus it may be advisable for service recipient to pay service tax on services where liability to pay such
tax is statutorily casted upon him ignoring the payment of same by service provider.